Rent Voucher Program is ThreatenedOverbooking of low-income subsidies could lead to federal takeover of L.A.'s operation. City, U.S. officials seek solution.

By Jocelyn Y. Stewart, Times Staff Writer

A housing program that subsidizes the rents of 44,000 low-income families in Los Angeles could be placed in federal receivership unless local officials resolve problems that threaten the housing of thousands of city residents, officials said.

"It's a very real threat," said Sarah Dusseault, Mayor James K. Hahn's deputy for economic development. "Every day that ticks by, the problem aggregates. We have to get more serious about it. We have to come together."

The revelation is the latest development in the troubles facing Los Angeles housing officials and their administration of Section 8, a federal program that helps low-income tenants pay their rent. Last month, the Los Angeles Housing Authority suspended the vouchers of 1,500 participants, citing a lack of funds. Housing rental contracts could be canceled for 3,600 other families.

Recent problems have prompted a stream of calls and letters between federal officials in Washington and Los Angeles officials seeking help.

Local officials had hoped the Department of Housing and Urban Development would allocate more vouchers or money and determine how much of the Housing Authority's reserves could be used to pay for the overbooked vouchers. HUD sent a pair of analysts this month to review the Housing Authority's books.

Dusseault met this week with Michael Liu, a HUD assistant secretary. In that meeting, she said, Liu communicated the department's willingness to take "substantive and aggressive" measures.

A takeover is not imminent, and city and federal officials are trying to devise a plan to keep the program solvent. For example, the city might agree to special conditions on operating the program if HUD relaxes some other rules.

"Our attempt is to negotiate a memorandum of understanding to preserve some local authority and to outline a timeline, so that the agreement with HUD is for a period of time and not indefinite," Dusseault said.

If the Section 8 program is placed in receivership, it will follow in the footsteps of housing authorities in other cities such as San Francisco and New Orleans, all of which in recent years have fallen under federal control. Those agencies had faced allegations of mismanagement.

Such a move would be a major blow for the Los Angeles Housing Authority — third-largest in the nation — which has won a reputation as one of the best-run programs in the country, housing advocates said.

Larry Bush, a HUD spokesman, declined to comment on the possibility of a takeover and said only that the "department and the city continue to have very productive discussion and are seeking a way to ensure that the goal of providing safe, decent and affordable housing is met."

City Housing Authority officials declined to comment.

Problems with the Section 8 program surfaced last month when local officials said their long-standing policy clashed with a new law. Much like an airline that overbooks flights to make sure all seats are filled, local housing officials issued more vouchers than the federal government allotted the city. The overbooking was an attempt to ensure that all vouchers were used — and was at one point encouraged by HUD.

Local housing authorities had been allowed to tap reserves or future allocations to cover the cost of any extra vouchers that were used. But Congress took away the authority's ability to use certain reserves to pay for vouchers and HUD has not issued new vouchers.

The problem of too many vouchers was exacerbated by the success of tenants in using them. At one time, large numbers of tenants with vouchers could not find owners willing to accept them. In recent years, that number has decreased significantly.

But federal officials blamed local officials for the city's problems, arguing that they had been warned to stop overbooking and that other agencies had been successful in dealing with the new requirements.

The threat of receivership has some housing advocates worried but has not shaken their perception that Section 8 has been run well in Los Angeles.

"From what I've been told so far, there is no allegation of fraud or mismanagement," said Jan Breidenbach, executive director of the Southern California Assn. of Nonprofit Housing, who also sits on the city's Affordable Housing Commission. "HUD changed its rules and it created problems for the Housing Authority. Now they're coming in saying, 'You're not doing it right.' "

The news of a possible takeover began circulating this week and had some rallying to the defense of Housing Authority officials and questioning the motives of HUD officials.

Saying that the Bush administration wants to dismantle Section 8, Breidenbach added, "It's hard to look at what they're doing and assume it is nothing more than prudent fiscal oversight."

Others questioned the ability of federal officials to administer the program in the city's housing market.

"It seems like HUD really doesn't have a good grasp of the L.A. rental market and how the market and rents are so extremely high here," said Larry Gross, who heads the Coalition for Economic Survival, which organizes tenants. "The administration here has been trying to be creative in ensuring tenants' needs are addressed."

Speaking Friday before a meeting of the Housing Authority's board of commissioners, Dusseault requested that authority officials prepare for a meeting with HUD and city officials on Tuesday.

She also relayed the mayor's request that the commission create a panel of experts that could be called on to advise the commission. The board also agreed to hire an attorney and the firm Deloitte & Touche to review the agency's books.

Commissioners and accountants will work through the weekend and a special meeting of the board will be held Monday.

In other matters Friday, the commissioners approved a series of measures designed to reduce costs, including reducing the subsidies that Section 8 tenants receive each month.